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Covid-19 Business Impact Alert

Covid-19 Business Impact Alert

Mark Hewitt

Considering the magnitude and severity of the COVID-19 outbreak, which has been declared a global pandemic by the World Health Organisation (“WHO”), the Minister of Coorperative Governance and Traditional Affairs on 15 March 2020 declared a National State of Disaster in terms of the Disaster Management Act No. 57 of 2002 (“the Disaster Act”) per Government Gazette No 43096.

Following the exponential widespread transmission of COVID-19 within our borders, the President of the South Africa, Mr Cyril Ramaphosa, announced a National Lockdown for a period of 21 days, starting on midnight Thursday, 26 March 2020, and lasting until midnight on 16 April 2020 (“the Lockdown”).

The President announced the following relief measures to assist businesses during this unprecedented and uncertain time:
  • A tax subsidy will be provided of up to R 500 per month for the next four months (i.e. April – July 2020) for private sector employees earning below R 6,500 per month under the Employment Tax Incentive (“the ETI”) scheme.
  • The South African Revenue Service (“the SARS”) will accelerate the release of ETI reimbursements from twice a year to monthly, to assist with immediate cash flow constraints for employers.
  • Businesses that have a turnover of less than R50 million will be allowed to delay 20% of the pay-as-you-earn (“PAYE”) liabilities for the months of April, May, June and July 2020.
  • Businesses that have a turnover of less than R50 million will be allowed to delay a portion of their provisional corporate income tax liability payments without attracting penalties and interest over the next six months.
  • A temporary reduction in the employer and employee contributions to the Unemployment Insurance Fund (“UIF”) and employer contributions to the Skills Development Fund (“SDL).
  • R 500 million has been made available to assist Small and Medium Enterprises (“SME’s”).
  • The Industrial Development Corporation (“IDC”) together with the Department of Trade, Industry and Competition (“DTI”) has set aside R 3 Billion for industrial funding and to fast track financing requested by companies critical in assisting the South African Government (“the government”) with the prevention and containment measures of COVID-19. Minister Ebrahim Patel further expanded on these relief provisions as follow:
    • R500 million has been allocated for trade finance to import essential medical products;
    • R700 million has been allocated for working capital and equipment and machinery;
    • In addition to this, the IDC is engaging industry players to address surges in demand;
    • Ensuring food security by prioritising support to Agriculture and food value chains;
    • Tourism sector support for working capital;
    • Bridging finance to support supply chain interruptions;
    • Working capital to ensure energy security by supporting suppliers of primary energy; and
    • Working capital and Bridging Finance to SMEs that provide components to car-makers.
  • The Department of Tourism has made R 200 million available to assist SME’s in the tourism and hospitality sector.
On 25 March 2020 further amendments were promulgated, to the regulations issued in terms of section 27(2) of the Disaster Act, in terms of Government Gazette No.43148. Contained in the amendments is Regulation 11B, which sets out the closure of businesses and premises. Extracts, which we believe to be of most relevance to our clientele, of Regulation 11B are detailed below:
  • All businesses and other entities shall cease operations during the Lockdown, except for any business or entity involved in the manufacturing, supply, or provision of an essential good or service.
  • Retail shops and shopping malls must be closed, except where essential goods are sold and on condition that the person in control of the store puts in place controls to ensure that customers keep a distance of at least one square meter from each other, and that all directions in respect of hygienic conditions and the exposure of persons to the Coronavirus are adhered to.
  • Retail stores selling essential goods are prohibited from selling any other goods.
  • Any place not involved in the provision of an essential good or service must remain closed to all persons for the duration of the Lockdown.
  • The head of an institution must determine essential services to be performed by his or her institution, and must determine the essential staff who will perform those services (the head of the institution may also delegate this function).
    • Each such staff member that is designated as “essential staff” must be issued with a “Permit to Perform Essential Service”;
    • Each such staff member must at all times carry a form of identification together with the permit;
    • A proposed ‘template’ of the form can be found here
    • All such “essential staff” may be subjected to screening for COVID-19 by an enforcement officer.
On 26 March 2020, Minister Ebrahim Patel furthermore announced that all businesses that will be allowed to provide essential services are required to seek approval from the DTI in order for them to trade during the period of the Lockdown. Such businesses are required to apply to the Companies and Intellectual Property Commission (“CIPC”) Bizportal website

The Bizportal website will contain a menu icon listed as “Essential Service Businesses” through which an application can be made to the CIPC.

The application will be a simple declaration requiring minimal registration details, type of business/trade involved in, what trading name if any is used and whether it meets the requirements contained in the essential services list, the contact details of the person applying as well as the number of employees that will be working during the lockdown period.

The certificate can then be used as evidence to authorities requiring same that indeed the business has been given government permission to trade and that its employees are able to have unrestricted movement only in the course of that trade.
  • Below is an extensive list of places and premises that must be closed to the public except to those persons rendering security and maintenance services at those places or premises:
    • Any place or premises normally open to the public where religious, cultural, sporting, entertainment, recreational, exhibitional, organisational or similar activities may take place;
    • Any place or premises normally open to the public where goods other than essential goods are procured, acquired, disposed of or sold; and
    • any place or premises normally open to the public such as:
    • public parks, beaches and swimming pools;
    • flea markets;
    • open-air food markets;
    • fetes and bazaars;
    • night clubs;
    • casinos;
    • hotels, lodges and guest houses, except to the extent that they are required for remaining tourists confined to hotels, lodges and guest houses;
    • private and public game reserves except to the extent that they are required for remaining tourists confined to private and public game reserves;
    • holiday resorts except to the extent that they are required for remaining tourists confined to such holiday resort;
    • on-consumption premises, including taverns, shebeens, and shisanyama where liquor is sold;
    • off-consumption premises, including bottle stores, where liquor is sold;
    • off-consumption areas in supermarkets where liquor is sold;
    • theatres and cinemas;
    • shopping malls and centres (excluding grocery stores and pharmacies);
    • taxi ranks, bus depots, train stations and airports; and
    • any other place or premises determined by the Cabinet member responsible for cooperative governance and traditional affairs by direction in the Gazette.
Any person who fails to comply with this requirement commits a criminal offence and, on conviction, will be sentenced to a fine or imprisonment not exceeding six months or to both such fine and imprisonment.

In relation to transport of the essential staff, Regulation 11C, sets out as follows:
  • All commuter transport services including passenger rail services, bus services, taxi services, e-hailing services, maritime and air passenger transport are prohibited, save for bus services, taxi services, e-hailing services and private motor vehicles used to render essential services, obtain essential goods, seek medical attention, funeral services and the receipt of grants. However, any such vehicle must carry no more than 50% of its licensed capacity and all directions in respect of hygienic conditions and the limitation of exposure of persons to the Coronavirus, must be adhered to.
  • If a person rendering essential services is unable to travel to and from his or her place of employment, the employer must make the necessary transport arrangements.
  • Regulation A sets outs the “Essential Goods” and “Essential Services” that are exempt from the Lockdown. The full list can be obtained here
Key Business Risk Considerations:

People and Teams

First and foremost for any organisation, is ensuring that people are not put at risk: employees, customers and suppliers. Many companies have adopted precautionary actions on travel and remote working to ensure teams are maintaining productivity and efficiency within safe working environments.

What actions can I take?
  • Ensure all employees are informed of the key public health advice available;
  • Review and implement remote working policies and deploy immediately;
  • Apply travel bans for non-essential staff;
  • Issue the “Permit of Essential Staff” to the relevant employees immediately;
  • Inform the applicable employees that they must carry a form of identification at all times;
  • Maintain travel records and close contact with employees travelling in affected areas
  • Provide appropriate equipment and controls to protect against infection risk, including testing procedures;
  • Communicate effectively and show empathy.
Funding and Cash flow

COVID-19 will now fully restrict the ability of employees to travel and in many cases, to attend their normal places of work. This has already had significant impacts on sectors such as leisure, airlines and hospitality. The latest regulations issued by the government will lead the temporary closure of operations, impacting supply chains and routes to market. The inability to produce and sell products and services may impact the revenues and servicing of finance in your own business, and that of your key suppliers and customers.

What actions can I take?
  • Understand, on a constant review basis, your cash position and ongoing funding obligations;
  • Dynamically assess key supplier and customer risk;
  • Stop, start, and continue: what activity is business critical and what options do you have to preserve cash without impacting business sustainability?
  • Engage with teams to identify efficiency opportunities;
  • Speak with lenders to help them understand your challenges and the options available.
Various banks have implemented COVID-19 financial relief packages. As examples, Nedbank has committed to providing a tailor made cash flow solution on a client-by-client basis. Standard Bank has committed to set up automatic new payment terms for all their clients with a turnover of less than R20 million per annum, who are up to date with their payments as at the end of March 2020 and are in good standing with Standard Bank.

Standard Bank has disclosed that these clients will have deferred payment terms for a period of 90 days. This entails that interest and fees over this period will still accrue to the bank and be capitalised to the lending account, but that no monthly instalment will be required.

Contact your relevant financial service provider and ask about their COVID-19 debt relief solutions.

Supply Chain

With movement of people and goods restricted, supply chain disruption will not occur.

What actions can I take?
  • Evaluate overall risk to your supply chain by liaising with suppliers to understand their plans and business continuity measures;
  • Identify where possible, alternative suppliers as a contingency measure;
  • Determine whether stock levels should be increased as a precaution, being mindful of cashflow impacts;
  • Work with logistics providers to develop options for delivery of goods in the event of dislocation of standard routes.

At a time when ‘business as usual’ isn’t possible, ensuring a structured and consistent approach to contractual obligations can help to promote certainty, both for contracts your business has with suppliers, and also contracts your customers hold with your own organisation.

What actions can I take?
  • Review your contract situation with legal advisers to understand your options;
  • Are there specific clauses relating to epidemic and infection, and how do these impact your contractual position?
  • Understand the business and financial impact of inability to fulfil contractual obligations;
  • Review your insurance arrangements to determine what protection these offer in relation to coronavirus and business interruption.
Tax Implications:

The SARS has not yet provided guidance on the methods of implementing the proposed relief as communicated by the President. The Commissioner, Mr Edward Kieswetter, has in the meantime released a media statement containing links and important information for all taxpayers during the Lockdown period. His statement, together with links and other information, can be found here

Compromise of Tax Debts with SARS – Do You Qualify?

What Next?

Our specialist tax advisory service team, is currently analysing the detailed tax implications and methods of possible relief available to businesses made public to date and is standing by once further information is released by National Treasury and the SARS.